We need a consumer revolution to deliver lower utility prices

Allister Heath was Editor of City A.M. for six years up until June 2014.

Allister Heath

POLITICAL ideas have always been cyclical. When incomes are falling, the economy is flatlining, credit is scarcer, prices are rising and it is hard to find work, the public always turns against capitalism (or the mixed economy corporatism that these days passes for it); in boom times, it tends to be more relaxed about other people making vast sums of money.

But ideological shifts are not a given. They can be stopped and reversed by determined leaders – as Boris Johnson showed during his election campaign, for example – and by the right policies. The key problem is that many markets have become rigged by massive government interventions in every nook and cranny of the economy, creating inefficiencies, damaging growth and financing vested interests at the expense of the general interest. Tragically, the coalition has barely begun to tackle any of this and in many cases has actually made the problem worse.

One MP who has been thinking about these sorts of matters is Dominic Raab, a thoughtful Tory who is campaigning for “capitalism for the little guy”. His main idea, contained in a pamphlet out today from the Centre for Policy Studies, is simple: the power of markets and especially competition need to be harnessed to boost consumer choice, slash prices and improve customer service in the energy, water, retail banking, schools and health sectors, all industries with a low reputation that are helping turn the public against business and capitalism. Raab’s reforms would deliver tangible benefits to millions of consumers, put them back in charge, relegitimise profits in those industries and signal that competitive capitalism is the real answer to cronyism, corporatism and class warfare.

As Raab points out, in the four years to 2014, the subsidies to energy companies to generate solar, wind and hydro-electric power – as part of the Renewables Obligation – are going up by 100 per cent to over £2.5bn, or £97 per household per year. Feed-in-Tariffs, another subsidy, will reach £790m per year, up from £14.5m in 2010-11. The Renewables Obligations’ replacement will further increase the cost to consumers to £7.6bn a year. These schemes need to be scrapped for people to enjoy cheaper bills.

But that is not all: Raab also wants to create a secure online account switching facility to make it much easier for consumers to change energy company if they are unhappy. Companies would be nudged into signing up to it via a temporary tax break. This part of the plan is crucial: consumers need to feel that they are free to choose and can easily sack their provider. He speaks highly of a recent mass switch-over coordinated by Which, the consumer magazine; 32,000 families changed providers after a special reverse auction.

The government is already encouraging Midata, a voluntary initiative that 20 big companies – including the top 6 energy firms – have signed up to. Consumers who request it are given, in a standard and easy to understand electronic format, key data about their consumption and costs, making it much easier to switch supplier and to make comparisons with rivals. This data could be fed into Raab’s new web portal and could transform consumer power, making it much easier to switch utility than it currently is to change mobile phone company or even to switch insurer.

Raab’s other ideas include separating the retail and supply arms of the water companies to create real choice in that market; and making bank accounts portable. The coalition must stop fiddling and urgently listen to pro-capitalist consumer advocates such as Raab.